$600 1099 Landlord Reporting Law Repealed

In a little-noticed but important victory for REALTORS®, particularly those who help households and mom-and-pop owners of small rental properties, Congress this week passed legislation to repeal a short-sighted provision in small business legislation enacted last year (and a similar provision in the big health care reform law) that imposed onerous reporting requirements on small landlords and the real estate practitioners who work with them.

UPDATE: President Obama signed the repeal into law yesterday, April 14, making it official.

The provision required even the smallest property owners — those who might just be renting out a second home or other rental property — to track any work done for them that totals $600 a year or more over the course of a year and to send any vendors whose work reaches that amount an IRS Form 1099, so they can report the income to the federal government. Prior to that change, the reporting requirement only applied to those in the business or trade of rental real estate.

When the provision was included in the small business bill, REALTORS® were among the first and firmest opponents of it, helping to ensure that Congress understood the provision was an example of over-reach that was never intended to burden mom and pop property owners. Members of Congress and President Obama got the message and, in a rare example of agreement between not only Republicans, Democrats, and independents, but also between House and Senate chambers and between the legislative and executive branches, lawmakers agreed the provision needed to come out.

To show his support for repeal, President Obama in his State of the Union address in January pointed to it as an example of something all sides could agree on, that it could and should be repealed as soon as possible. This week it was repealed without fanfare and sent to the President for his signature. “It just involves too much paperwork, too much filing,” the President said back in November.

The action shows members of Congress can work together quickly on issues that are supported on a bipartisan basis, as this provision was.

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As a realtor and a landlord this is great news. It really helps me appreciate all the behind the scenes work that is done by NAR on our behalf. Thank you for the post.

Mark Hardy

This is great news and will place less burden on landlords and hopefully seek to carry the recovery of the housing market forward.

Holly Grigaitis

With commentary being actively considered right now on raising NAR annual dues 40 dollars, I think it would be EXTREMELY wise to remind the membership of all the wonderful things like this that our association does for property owners, and for those that work in this industry. I dont always agree with our associations at all levels, but I fully support real estate and private property rights having a voice on Capitol Hill. ASSOCIATIONS- toot your horn in the coming months! ….. I dont want to see our industry go the way of the mortgage broker, the loan officer, the appraiser…. insidious policies put in place by people who have no understanding of our industry, because those professions had no voice as strong as NAR… think about that, and pony up the extra 40.00!.

Andy Golding

Holly said it very well.

We need to keep the accomplishments of our associations in focus; reasons to agree and support, rather than issues to gripe about.

This is indeed great news. Kudos to our NAR Association for job well done. I would also go further and state that this was a team work from all fellow REALTOR’S through the nation who took part in it. On the initiatives like this or the ones currently being proposed by our government we the REALTORS must be very much focused and be proactively involved.

This was no victory the 1099 is a very simple form and can be downloaded on the IRS.gov site.The 1099 to a vendor is a good way to document the vendors work and take the deduction for the repair. This is only a good deal for the vendor because you are not reporting that income to IRS.Now it will be much easier for the vendor not to pay pay tax on the income. That is what we need another person who want pay tax on his or her income so the rest of us can support them and pay more tax.I do not support over taxation but think everyone should pay a fare share.Come on NAR Make some Change We Can Believe In.You sure you are not The Democrat Party posing as NAR

John Trelease

Am I missing something? Hasn’t reporting income and expenses been part of the tax filing process for a long time? Filing taxes and using form 1099 to report the earning threshold of $600 income paid has be part of owning a business, whether large or small. Am I still missing something?

It great that this has been taken back, but I think NAR has to get into these fights before they even pass these stupid laws. We should have never let the banks control our commission on Short Sales…no no no!

Jules Douglas

I also do not understand why this is a victory for anyone except those who can now continue to hide income. Please, the form 1099 is so simple to fill out, you can even scribble in in with a pen for goodness sake. The ‘Mom and Pop’ that NAR is defending so staunchly would not have to do very many of these in any given year. It’s good recordkeeping, and a good way to get income reported. Thus, more people will be paying their taxes, helping out all of us — oh wait, they won’t be. Now I have to pay more than my fair share so businesses can skip some of theirs. All my commission income has to be reported on a 1099 – why not for everyone? I hate to see this celebrated as a victory.

This is really a good news for all of us as Real Estate Professionals. Let’s work togehter to prevent our government taking away our property tax exemption for 1 – 4 units.

Alice

Robert Freedman

Thanks for everyone’s comments. I’d like to respond specifically to the comment by John Trelease, who makes the point that the $600 Form 1099 reporting requirement has been around for some time, so what was the change all about?

What the law would have changed (and I should note that President Obama signed the repeal yesterday, so it’s now officially gone) is who it applies to. Under the just-repealed provision, anyone who has a rental property, even those who aren’t in the business or trade of rental real estate, would have had to keep records of vendor expenses and send the 1099 Form to all vendors doing at least $600 a year in work. So, now that that requirement is repealed, existing 1099 reporting requirements apply. So, only property owners who are in the business or trade of rental real estate must meet the reporting requirement. People who are renting out a second home or other property, including those who work with a real estate professional to help them manage the property, but aren’t in the business of rental real estate, don’t have to keep the 1099 records.

That expansion of the reporting requirement was part of small business legislation that passed last year. There was also a sister provision in the health care reform law that also passed last year. That sister provision has also been repealed, but it was a little different. It required all businesses (we’re not just talking rental owners) to track all vendor work, including vendors who are incorporated businesses. Prior to that change, businesses only had to track payments to independent, unincorporated vendors. The thinking was that incorporated businesses already have a way to systematically account for all of their income and didn’t need the 1099 Form. In any case, both provisions are now repealed.
—Robert Freedman

I would like a better understanding of small property owner. I have a small complex of 6 one bdrm units, my son has 2 duplexes and a 10 unit complex. Are we both small property owners or am I and he isn’t or are we both or neither of us are. I don’t know where to draw the line. I work for a man that has 135 rentals I can tell he’s big. Your help would be appreciated. I use Home Depot for most of my expenditures on my property but they are incorporated so one doesn’t have to send them a 1099, right?

I pay an independent painter over $600 he would get one right? Unless of course, I am exempt because I”m small.

Curt Schreiber

A couple of things to think about.

This requirement that was repealed could conceivably have required owners of a rental condo to send the HOA management company a 1099 for their “service” of running the HOA. Does a landlord pay for some of the utilities on a rental property? Then a 1099 might have been required to a city or public utility for the electric “service”, water “service”, or sewer “service”. How dumb and a waste of time is that?

More importantly, if you send out a 1099-Misc to someone who did work for you, like say, a painter, roofer, landscaper, etc. and you are not incorporated with regard to the rental property, guess who’s Name, Address and SOCIAL SECURITY NUMBER goes on the 1099. Yup, its yours! I’m looking at the form right now. Now, don’t we all just want to give that information to every Tom, Dick and Harry who happens to do work on a rental property for us?(No offense intended to anyone who’s name is Tom, Dick or Harry) We might be OK with the guy getting up on the roof to fix a leak or wind-damaged shingles but do we want to trust them with our personal information? How do we know they won’t just toss it in the trash dumpster for the apartment complex they might live in? For anyone to find. It seems like an open door to the risk of identity theft to me.

This was an ill-conceived law from an over-reaching congress that needed to be repealed.

Jeanette Bishop

As per the repeal of the mortgage tax deduction, I believe Obama stated that it could well be removed for high income people, perhaps over $250,000, who certainly don’t need all the deductions they have had for years. The country needs a fair share from these people too, and many are paying ZERO taxes, even some of those at the very top, raking in millions or billions every year. There is certainly no reason for NAR to be wasting energy working against that sensible change. The people at the top need to be paying, and many of the tax loopholes need to be denied them so they can.

Beatriz Dean

NAR represents REALTORS, not vendors nor MOM and PoP, nor big investors, nor Charlie Rangel, our congressman who also failed to report income. The repeals helps vendors hide their income and also helps MOM and POP not disclose their private money generating bussiness to the IRS.
Having to complete the 1099’s encourages owners to seek professional help, hence hiring a REALTOR. NAR doesnt get it. Lets stop calling non realtors “MOM and POP”.

Great News, this is a victory for Realtors and landlords alike. We need less regulation not more to get this economy going again.

Brendon

As a small landlord, I’m pleased that I won’t have to deal with the 1099’s and can tear up my EID application form (so I don’t have to put my SSN on the forms for Tom, Dick and Harry).

As a taxpayer, I’m less thrilled. In my area, there are a lot of little service businesses (handymen, gardening, painters, construction) who have two price structures. If you ask about 1099, their price is more expensive. These folks are just cheating on the taxes (and passing some of the savings to you) and making it harder on those who operate honestly to compete. Ultimately, we all pay higher taxes when people cheat.

There is some silliness about how the $600 1099-MISC was planned to operate, but the reporting difficulties should be worked out to make it sensible, not thrown out to help the underground economy.

Mayra

As a Realtor and Landlord myself I thank you NAR for all the big and little things you do for us. We appreciate all you do and back you up on all your decisions to make our Real Estate Business a better place.

mmm

looks like we will become a cash and gift card society…no paper trail is the way to go!

Bob

First off…I’m glad this provision was repealed. However I want to make sure that everyone understands that getting paid cash is not considered under the table. It is perfectly legal to get paid cash for merchandise and services. The only time it is under the table is if it is NOT reported to the IRS, and even then wages aren’t supposed to be taxable according to the constitution…so if someone breaks the law and requires you to follow a new law that is in fact unconstitutional who is really breaking the law?

Nuff said…just tired of brainwashed sheeple referring to cash payments as under the table, when all 50 states give the business owner the right to choose their method of payment!

If you take a look at the 2011 form 1040 Schedule E, the very first questions on there are “Did you make any payments in 2011 that would require you to file Form 1099” and then “If Yes, did you or will you file the required forms”.

If small mom-and-pop landlords are now not required to file Form 1099, then why is it the first question on Schedule E?

rebecca

I agree with Kim’s question. Why is the question on the top of the 2011 Form Schedule E if the mom and pop landlord who reports on Schedule E is not required to file 1099s? Would not the answer always be “no” to question A, “Did you make payments which require a 1099?” In which case, why pose the question? What are the requirements for 1099 reporting for 2011?

Atlanta CPA

This article is misleading – at best. ANYONE engaged in a trade or business – including landlords who report on schedule E – are required to follow the 1099 reporting rules. Generally, if you pay $600 or more to an unincorporated person or company for services during the tax year, you are required to send them a 1099. Do NOT let your auto mechanic take out your appendix and do not take tax advice from a realtor. See a CPA or tax attorney.

Holloway & Co CPA

A real property trade or business is a trade or business that does any of the following with real property. No matter how many properties you own, if any of the following apply, you are subject to the 1099 reporting rules:

Develops or redevelops it.

Constructs or reconstructs it.

Acquires it.

Converts it.

Rents or leases it.

Operates or manages it.

Brokers it.

Robert Freedman

Thanks for your note. What the law changed is who it applies to. You’re right that existing 1099 reporting requirements remain. All that changed was that those requirements won’t apply to individuals who own a rental property but aren’t in the business or trade of rental real estate. The law, before it was repealed, would have required them to keep records of vendor expenses and to send the 1099 Form to all vendors doing at least $600 a year in work. But now that that requirement is repealed, only property owners who are in the business or trade of rental real estate must meet the existing reporting requirement. People who are renting out a second home or other property, including those who work with a real estate professional to help them manage the property, but aren’t in the business of rental real estate, don’t have to keep the 1099 records. Thanks again for the comment. Best, Rob Freedman

Deanna

It is very confusing when you state “only if they are in the business or trade of rental real estate” so basically if you own 1-100 rentals you do not have to file a 1099 if you are using a management company????? But yet the homeowner writes off the expense and the management company files the 1099? I’m so confused. Is it at the end of the day the property manager files the 1099s in their company name or the owners name.

Gladys

I’m retired military living in Texas and rent out my home in Louisiana. The home is consider my second home. I paid several companies between $600 – $4000 to do repairs on the home when the neighbor’s tree fell on it. I’m renting out the home because it has a mortgage and I can’t afford to pay it; plus the insurance is too high if the home is not occupied. I also had other repairs that I need to claim for regular maintenance. I have all my receipts and some notarized that I had to seen to the mortgage company. I don’t consider myself in the rental business. Do I have to do a 1099? The home was empty until a management company started renting it for me Sept 2011.

Robert Freedman

Gladys, to be on the safe side you want to talk with your accountant or other professional about whether the repeal of the 1099 reporting requirement for individuals (it still applies to businesses), but it’s my understanding that it wouldn’t apply to you since you’re not in the business of renting and managing property. But, again, if you have an accountant or attorney, you want to verify that with them.

Paul Matzner

What about rental income 1099 reportingfor 2011 income. I am a smalll independent renter with two rentals on my home property. Am I required to supply them with a 1099 for the yearly rental income that I received and to report this to the IRS separately from my usual reporting of these rents as income on my 2011 tax return?

Lee

I think this is a big mistake.

Do you know how many Gardeners, Plumbers, Electricians, Contractors, and others that do not report all their income. This is a good way to besure that they are reporting at least most their income.

I pay my Taxes, Why should these others get away with not paying their share?

Yes Lee, I agree. But this is in competence of the IRS and they should promptly deal with such loopholes.

Wes Franciol

You CPAs are full of crap. You need to go back to the books and review when an activity is regarded as a trade or business and when it is a passive activity. There are major holes in your argument and you are giving bad advice in order to get more consulting fees. If you are classifiying your clients’ rentals as a trade or business and claiming non-passive income/losses, you are setting them and yourselves up for major problems. You better check with your tax department or a real tax expert. Or try to read: IRS Form 8582-CR (just the instructions will do). You can’t quote part of the code that does not apply to the majority of individuals here who are looking for answers. These are by far, people who cannot qualify as being in trade or business simply because of the “material participation” exclusion. There may be a few exceptions on this board but you cannot address law for exceptions and exclude law for majority posters.